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Keep the Quarterly Earnings Reports

June 14, 2018

All of a sudden there is a movement to stop quarterly earnings reports because that is “the cause of market volatility.” Bull Doody! The cause of volatility are the traders and many of the so-called “professionals” who need to have “action” to justify their being.

Traders trade and whatever volatility they cause has long been built into the market, so let’s skip them. As to professionals, they are supposed to be a group that does not act precipitously to news of a fleeting nature. Therefore, based on this definition advisors that sharply react to earnings reports, and beat and guidance messages cannot be “professionals.” Essentially much of the activity is now based on the accompanying noise rather than the actual earnings. After all, what is a penny here or there? We don’t even bother to bend down to pick up a nickel anymore, let alone a penny.

Ditching the earnings reports will not negate the guidance and analysts estimates as well as the ton of nonofficial information that is used to “drive the market” such as consumer demand, retail sales, employment statistics, commodity prices, supplier orders and even orders of shipping cartons. Also, I think that anyone that uses one quarter’s earnings to make major buying or selling decisions is being pretty foolish and I certainly do not want them managing my money or telling me what to do. Investing should be a long term endeavor and a good or bad quarter should not alter or sidetrack a thought out strategy and plan.

Quarterly earnings provide a degree of accountability, transparency and a somewhat reliable update on how things are progressing and are usually accompanied with some sort of explanation of unexpected results. Further, these are reconciled in the annual report so the veracity and reliability of the quarterly information can be reviewed by investors. Almost all of the other information is not held to account except with an occasional oops by the “expert” that presented their non-sage advice.

Ditching the earnings report is similar to not weighing yourself when on a diet. It is a form or measurement. Day to day weight changes or quarter to quarter earnings changes are not as important as the trends indicated over a period of time, with heads-ups in between to better monitor the results.

Keep the earnings reports. Let’s get rid of the charades perpetuated by some professionals trying to justify their raison d’être.

Note: Many advisors are true professionals and I am not condemning the entire profession, just those that over react to quarterly reports.

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